Circuit City executives plan for 'tougher environment'

MaryEllen

RICHMOND, Va. (MarketWatch) -- As they wrap up what's widely expected to be a dismal year, Circuit City Stores Inc.
CC, -2.74%
executives anticipate a tougher environment in the fiscal year that starts in March.

Chairman and Chief Executive Philip Schoonover said the consumer electronics retailer will continue to prune expenses after this year, taking out selling, general and administrative costs expected to generate $250 million in annualized savings. "We have to prune things that are not lifting the economic outcome," he said, declining to provide specifics.

As executives on Wednesday wrapped up weeks of meetings to finalize the fiscal 2009 budget, they also said they see bright spots in the struggling retailer's turnaround.

"We think there's reasons why this industry will be healthier than others, even in a more difficult, slowing economy," said Schoonover, who is also president of the Richmond, Va., company.

The federal requirement that all television broadcasting signals switch over to digital from analog by February 2009 should represent the biggest unit-growth opportunity he's ever seen, Schoonover said. Some 19.6 million households rely on such analog signals, and they average nearly three TVs per household, he said.

Neither Schoonover nor Besanko would comment on their outlook for the fourth quarter or fiscal 2009 beyond the company's January statement affirming guidance of a "modest" loss before taxes for the fourth quarter, driven by a loss in its U.S. operations.

Analysts surveyed by Thomson First Call expect a fourth-quarter loss of 5 cents a share, bringing the full-year loss to $1.47. For fiscal 2009, analysts forecast a loss of 88 cents a share.

Circuit City shares closed Wednesday down 3.5% at $4.72, and shares have fallen sharply from their 52-week high of $22.02 set Feb. 9, 2007, as the company has lost market share to larger rival Best Buy Inc. (BBY) and discounters.

Schoonover indicated that Circuit City is in no rush to sell its Canadian InterTan business, which has been under strategic review since March. The effort was delayed over the holidays so Circuit City could focus on the most important selling season, and many private-equity buyers have pulled back on deals amid the turmoil in financial markets.

"We're proceeding with that work as we speak," Schoonover said, adding that all options remain under consideration. But he noted that the unit's results improved in the third quarter. And on a "four-wall" basis, or excluding related corporate expenses, the stores are more profitable than those in the U.S. "They make money," he said. "We're not in a position where we need to give the (Canadian) company away."

Schoonover said Circuit City's board continues to support management's plans for turning around the retailer.

Hollywood Entertainment Corp. founder Mark Wattles, who took a 6.5% stake in Circuit City last month, has said acquiring the chain or urging leadership changes are among options he'll consider as he pushes for improved performance at the electronics retailer.

Schoonover said he has talked with Wattles in recent years as the latter invested in other electronics retailers. "I actually haven't talked to him about anything related to business in over 13 months," Schoonover said. "I have not talked to Mark Wattles about his intentions."

But he said management's position is "that we have a solid plan here."

"We have the financial capability and the access to sustain a multiquarter turnaround," he said. "While we're learning from some of the errors we made, we're making significant progress on that turnaround, as we think on behalf of the shareholders that at today's stock price, we're better off staying the course."

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